On Wall Street, it is good advice to “buy low and sell high,” making money off the difference. Many hospital chains have developed their own version of this trade, except their swap relies on misusing an obscure federal program.
You may not have heard of the 340B program. Lawmakers set it up in the 1990s to help poor people, particularly those who are on Medicaid or lack insurance coverage, to afford prescription drugs. The program requires drugmakers to sell prescription drugs at a deep discount to hospitals, clinics, and pharmacies that qualify. It has grown into the second-largest federal prescription-drug program.
The goal was noble: “to stretch scarce Federal resources as far as possible, reaching
more eligible patients and providing more comprehensive services.” However, hospitals are taking advantage of one weird trick: they can turn around and sell the drugs for full price and make money without improving services to patients.
One real-world example of this technique comes from Richmond, where the health system Bon Secours Mercy Health earned more than $276 million via the 340B program at just one facility: Richmond Community Hospital. The New York Times reported it was the hospital with the highest profit margin in the state. But the largesse didn’t trickle down to patients.
“You look at Saint Francis in Chesterfield and Memorial Regional in Hanover and look at their facilities and then you look at Richmond community,” Pastor Ralph Hodge, an activist, pointed out in 2022. “It’s African Americans who are once again getting the short end of the stick while other communities are receiving the benefits.”
Drug manufacturers have tried to rein it all in. “Since the summer of 2020, over 20 drug manufacturers, including Eli Lilly, Amgen, and Johnson & Johnson, have enacted policies restricting covered entities from dispensing some or all of the manufacturers’ 340B drugs at more than one contract pharmacy despite HRSA’s 2010 guidance allowing covered entities to utilize an unlimited number of contract pharmacies,” a U.S. Senate report wrote this year.
Limiting hospitals to just one pharmacy instead of many would be a step back to the way the program was designed originally. In response, the Health Resources and Services Administration sent them warning letters and threatened to impose fines. That’s not the way to restore sensible policy.
A better approach would be to allow the free market to work. Instead of government-mandated discounts, allow drug makers to charge market prices, all the time, everywhere. This isn’t as radical an idea as it may sound.
Those old enough to remember the 1970s will remember gas lines. The federal government attempted to protect consumers by setting the price of gasoline. But that backfired. Gas companies couldn’t make money, so there wasn’t enough fuel available. People lined up but couldn’t fill up. The problem was only solved when President Reagan signed an executive order in 1981 that lifted price controls. Soon, prices dropped and a glut of fuel flooded the market.
The government has been interfering in the pharmaceutical market for decades. It has always had good intentions, just as policymakers in the 70s had good intentions. But its interventions just keep making things worse.
As a group of activists wrote recently, the 340B policy was supposed to make it easier for poor people to get treatment. It hasn’t happened. “Charitable care is hard to find at these hospitals,” the activists write. “There is a $26 billion gap between the tax exemption large non-profit hospitals enjoy, and the amount of charity care they provide. The largest gap is at the largest non-profit hospitals, those with more than $100 million in tax-free income.”
A free-market policy would mean a short-term disruption, but a long-term supply of affordable drugs for those who need them, without allowing hospitals to skim off profits that don’t benefit patients. It’s time to try a new approach.
Rich Tucker is a writer and editor based in Richmond, Virginia. His work is found at https://richardbriantucker.substack.com/.
